“Of the £5.6billion of venture capital invested in 2017 in the UK, 89% went to all-male founder teams.”
This is the alarming headline statistic in the recently published UK VC & Female Founders report, produced by the British Business Bank in collaboration with Diversity VC and the British Private Equity and Venture Capital Association (the “Report”).
The Report assesses 45 UK VC firms, more than 4,000 pitch decks and more than 900 investment committee decisions to provide data on the gender make-up of founding teams. For a quantitatively driven sector, researching and quantifying the barriers that are facing female founders in Venture Capital is a particularly effective way of highlighting issues and driving change – and the findings of the Report make for sobering reading.
Why don’t VCs invest more in teams which have female founders? The Report suggests that the reasons are broadly threefold:
The low number of women in certain industries is one reason for their low representation in VC deals. For example, Software attracts the most venture capital investment but only 26% of employees in digital industries are women. If the sectors focused on by VC firms, which include AI and technology, typically have low female representation, this ‘caps’ the number of businesses founded by women that are available for VC investment.
Increasing diversity within the Venture Capital community is required at a grass-roots level, from the industries most favoured by VCs.
Investments made are dramatically impacted by network connections. A ‘warm introduction’ (being introduced by someone who is in the network of the VC) means a team is 13 times more likely to get from pitch-deck stage to being funded at investment committee than a ‘cold introduction’ (having no prior contact). The Report suggests that female-founded and mixed gender teams are less likely to have warm introductions, and see less benefit from one, than male-founded teams.
VC funds with female decision-makers are around twice as likely to see pitch decks from all-female teams than those that didn’t, making female representation in funds at a senior level as important as the gender diversity of the start-ups themselves.
There is potential for unconscious bias in VC’s decision-making. 75% of pitch-decks received by VCs were from businesses with no women on the founding team. The Report finds that a lack of female representation across the industry enables the perception that all-male teams are the ‘default’ and women are ‘atypical’ and ‘riskier’.
Start-ups and early stage companies tend to have less rigorous, objective information available to investors. Instead, investors looking to invest capital wisely and build working relationships rely largely on their assessment of the individuals in the founding team. The Report suggests that the pressure to find a big win, and at speed, with little objective data makes it possible to see how investors could revert to choices that have previously led them to success. As the Report notes, in such circumstances, a historical entrepreneur who previously ‘returned the fund’ comes easily to the front of mind – but subconscious pattern making is dangerous and monoculture breeds a narrow opportunity pool. With women being underrepresented and less likely to benefit from the ‘warm introductions’ presented by networks, it is possible to see how the cycle of unconscious bias against all-female teams can be hard to break.
The findings in the Report are a stark picture, but responses from across the industry and wider are incredibly encouraging. Some of Marriott Harrison’s own VC clients are actively taking steps and implementing practices that address the disparity, both from within their own firms and by encouraging those companies within which they invest (which you can read more about in the ‘Views from the Industry’ section of the Report). The recent news that Glossier and Rent the Runway, being female-founded businesses, have both reached a $1 billion valuation post-VC funding, feeds into this progress.
It is important that there is recognition by the industry that women are not the only category under-represented. Whilst there is a growing appreciation that diversity is vital to high performing teams (and research like that conducted by the Report contributes to this awareness) it is only the adoption of long-term and sustainable diversity initiatives which will force the rate of change, and we have some way to go.
This article is current as of the date of its publication. The information and any commentary contained in this article is for general information purposes only and does not constitute legal or any other type of professional advice. Marriott Harrison LLP does not accept and, to the extent permitted by law, excludes liability to any person for any loss which may arise from relying upon or otherwise using the information contained in this article.